Doors slam shut for China deals around the world

This article first appeared in The Edge Financial Daily, on August 21, 2018.
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DOORS are slamming shut in the developed world not just to Chinese investment in technology but potentially to a wave of acquisitions with a tech element, as diverse as smart heaters and robotic lawnmowers.

US President Donald Trump last week signed an update to legislation for the Committee on Foreign Investment in the US (CFIUS) that broadened the interagency vetting committee group’s scope to encompass even minority and passive investments in three areas: Critical technology, infrastructure and businesses that handle personal data. This tightening of the rules has been happening for some time, but it’s now explicit.

Just ask Jack Ma, who earlier this year had to abandon Ant Financial’s bid for MoneyGram International Inc amid CFIUS concerns that “malicious actors” could obtain data on US military personnel who use the payments service. Or Broadcom Ltd, whose US$117 billion (RM479.7 billion) bid for Qualcomm Inc was rejected by Trump after the committee worried that the deal, and the inevitable post-merger cost-cutting, would give China’s Huawei Technologies Co a tech leg-up.

But there’s more to this CFIUS update.

In the past, “notifications to CFIUS were voluntary, at least until CFIUS came knocking,” said Rod Hunter, a Washington-based trade partner at Baker & McKenzie LLP. Now, an acquirer planning to invest in anything remotely “smart” in the US stands to be investigated.

Ambiguity abounds: What kinds of “personal data” are vulnerable in a world where pretty much every company must seek to monetise such information to get ahead? If all information is critical infrastructure, can any Chinese incursion come in under the radar? Would Haier Group Corp’s purchase of General Electric Co’s home appliance business a couple of years ago — partly to leverage the American company’s smart-home technology — get the green light now?

China’s challenges aren’t limited to a more protectionist US, or to similar stances in Australia and Canada. Europe, the favoured destination of late, is getting a lot tougher. 

This month, Chancellor Angela Merkel’s government vetoed for the first time a possible Chinese takeover of a German company, blocking the bid for a machine-tool manufacturer, Leifeld Metal Spinning AG. Berlin is still reeling from the outcry sparked two years ago by Midea Group Co’s purchase of Kuka AG, a robotics firm, and wants to lower the threshold at which it screens non-European Union acquisitions from the current 25%. Even the UK, keen to cultivate China as Brexit looms, is proposing removing thresholds for small takeover targets, minority stakes, or even the acquisition of intellectual property.

That’s not to say Beijing will have to give up all of its Made in China 2025 ambitions. As my colleague Noah Smith has written, joint ventures are still a way to acquire coveted technology. And when all else fails, China can wave its own antitrust stick. You can blame the current trade spat, but it’s hard not to connect Trump’s veto of Broadcom-Qualcomm with the US chipmaker’s failure to win Chinese approval of its pursuit of NXP Semiconductors NV this summer.

The fact remains that China doesn’t have a lot of options for bringing in the technology it needs. That puts Beijing on the back foot, under pressure to play fair and open its market to the rest of the world.

China has already promised to permit investment in its financial sector, after decades of complaints from Wall Street, and now is making it easier for foreign buyers to take strategic stakes in domestically listed companies in many industries. That may eventually be seen as the kind of reciprocal treatment Western governments want. For now, though, the world’s doors are shutting to Chinese investments. — Bloomberg 

Nisha Gopalan is a Bloomberg Opinion columnist covering deals and banking. She previously worked for The Wall Street Journal and Dow Jones as an editor and a reporter.